Trying to gain better control over your finances can be a great goal to have. While all the different factors that affect how you save, borrow, and make money can seem complex when you’re starting out, you can easily become well educated about your finances by breaking up the knowledge you need into smaller chunks.
Understanding your credit score can be a great place to start. Having better credit can come with a huge set of advantages that can potentially help improve all of your finances. Here are the basics of what your credit score means and how you can improve it if needed.
What is a Credit Score?
Your credit score is a number that generally falls somewhere between 300 and 850. Your score is calculated based off of your credit reports, usually taking into consideration accounts made in your name and how reliably you make payments on those accounts.
It’s not unusual for your score to vary a bit, and you may even find that you have more than one score at a time. This is because there are multiple credit bureaus that create credit reports and there may be slight differences between the results you get from each one.
The higher you fall on the scale, the better the credit reliability you are considered to have by financial institutions.
Why Does it Matter?
Banks use credit score as an indicator of how likely someone is to pay back a debt. When you apply for a loan from your bank, your credit score is one of the main factors used to determine whether you will be approved.
This means that when you’re trying to make a big purchase, such as buying a car or taking out a mortgage on a home, your credit score can either help or hinder your ability to do so.
A good credit score can be vital for all sorts of tasks, and having a good one can help get you approved for better loans, potentially saving you lots of money in the long run.
Factors that Affect Your Credit Score
There can be many factors taken into consideration by credit bureaus that are used to calculate your score. Perhaps the single most important one is your history with making payments on your bills on time.
This can include all kinds of payments, such as loans, credit card debts, and even rent. Not paying your bills on time can hurt your credit score fast.
Other considerations include how much money you owe at any given time and how long you have built up your score. Young adults and others who haven’t built up their credit history yet generally fall fairly low on the scale.
Improving Your Credit Score
While you may not be starting out with a great score, it is entirely possible to build it up. There can be tons of valuable information on the internet about how to improve your credit score.
Understanding how your credit score is calculated can be the first step to improving it. By making adjustments to the behaviors that you know are affecting your score, you can begin to make it better.
One of the best things you can do is consistently pay all your bills in full and on time. Keeping the amount of money you owe at any given time as low as possible can also be a good strategy.
It is important to remember that building up your score takes time. You definitely won’t see any results overnight, but if you stick with it you should find that things have noticeably improved.
As with any financial goal, one of the most important first steps to improving your credit score is to set goals. Setting good goals for improvement starts with having a good understanding of where you’re starting from.
You should check your current credit score so that you know what you have to work with and then figure out changes you can start to make in order to build it up to something better.
Checking your credit score often, at least once a year, can help you to keep track of how well you’re doing. Writing your goals down can be a great way to see your progress and improvement over time.
Developing a Good Credit Score
A credit score can have a huge effect on your ability to take out loans and succeed in other financial projects. Luckily, the score you currently have is far from fixed.
Whether you’re a young adult starting from scratch or someone looking to improve the score you’ve developed over the years, there can be many ways for you to increase your score.
It can take some commitment on your part, but by forming good habits such as paying off all your bills on time, you can build your credit score up to something that you can be proud of.